By Angela E. Giancarlo, Howard W. Waltzman and Donald K. Stockdale Jr., Mayer Brown LLP
Over the past several months, the Federal Communications Commission has issued two decisions that modernize and streamline its foreign investment policies for certain radio licensees, including wireless telecommunications carriers. In addition, the Commission recently initiated a proceeding to consider providing similar relief to broadcast licensees. With these changes, the FCC aim to reduce regulatory costs on current and prospective wireless telecommunications licensees and broadcasters, facilitate investment from new sources of capital and enhance opportunities for technological innovation.
The FCC's actions will have an effect on the forthcoming spectrum incentive auction, which will involve entities currently holding broadcast licenses and those seeking to win new wireless telecommunications licenses, as mandated by last year's Spectrum Act.
Section 310(b) of the Communications Act requires the Commission to review foreign investment in any “broadcast or common carrier or aeronautical en route or aeronautical fixed ‘radio station license.’” In practical terms, radio station licenses are spectrum-based licenses, including those used to provide wireless telecommunications and broadcast services. Specifically, section 310(b)(3) prohibits a corporation from holding these types of licenses if more than 20 percent of the corporation's equity or voting interests is held by foreign governments or representatives thereof, or by a foreign corporation.
Section 310(b)(4) prohibits a corporation from holding these types of licenses if it is directly or indirectly controlled by any other corporation of which more than 25 percent of the capital stock is owned or voted by aliens, foreign governments or foreign corporations. Unlike section 310(b)(3), however, section 310(b)(4) grants the Commission discretion to allow higher levels of foreign ownership in controlling U.S. parent companies unless it finds such ownership would be inconsistent with the public interest.
On its face, this statutory language may seem straightforward. In reality, however, the FCC's foreign ownership rules and policies are notoriously ambiguous and confusing. Because section 310(b) applies not only to an initial application for a license, but also to applications for assignment and transfer of control, as well as to spectrum leasing arrangements, entities subject to these rules often find compliance and reporting to be time-consuming and expensive.
The Commission's recent actions to streamline its foreign ownership approval procedures as they apply to wireless licenses carriers, and to consider a proposal to analyze foreign ownership in broadcast licenses in a more meaningful way, are therefore encouraging.
In August 2012, the Commission ruled that it would no longer apply the bright line 20 percent foreign ownership limit set forth in section 310(b)(3) of the Communications Act where foreign ownership in the licensee is held through U.S.-organized entities that do not control the licensee. Instead, the Commission will draw upon the discretionary authority found in neighboring section 310(b)(4) of the Communications Act to determine on a case-by-case basis whether proposed foreign investment in a common carrier licensee is in the public interest. Because the Commission relied on forbearance authority granted by section 10(a) of the Communications Act, this ruling applies only to common carriers, including wireless telecommunications carriers. The prior approval requirement remains in place, however.
In April, the Commission took additional steps to streamline foreign ownership policies. The Commission will now:
Finally, as noted earlier, the Commission is in the process of gathering and reviewing comments pursuant to a request that it update its foreign ownership policies applicable to broadcast licenses to include “a substantive, facts and circumstances evaluation.” On Feb. 26, 2013, the Media Bureau at the FCC released a notice seeking comment on an August 2012 request from the Coalition for Broadcast Investment (CBI), which asked the Commission to clarify that it will “conduct a substantive, facts and circumstances evaluation of proposals for foreign investment in excess of 25 percent in the parent company of a broadcast licensee.”
CBI asserts that the Commission presently “will not even consider” proposals for above-benchmark foreign investment in broadcast licensees, and argues that modernizing the rules would “place broadcasters on the same footing as every other industry participant and signal that the broadcast sector continues to be a vital and valued part of the 21st-century media and telecommunications ecosystem.”
On a macro level, action in the area of foreign ownership signals the Commission's willingness to try to put regulated entities (e.g., wireless telecommunications carriers and broadcasters) on an even footing with unregulated content distribution platforms, which provide similar, if not identical, services. While the Communications Act mandates prior approval of foreign ownership, modernizing its longstanding processes exemplifies the Commission's recognition that, in today's converged world, wireless carriers and broadcasters directly compete with various entities that are not subject to any restrictions on foreign investment. Multichannel video distributors and Internet over-the-top providers, for instance, do not incur the economic burden associated with obtaining regulatory consent to foreign ownership as do their regulated competitors.
The ability to attract capital from a larger pool of investors is especially important to prospective bidders for wireless licenses in the forthcoming incentive auctions. The 2008 FCC auction of 700 MHz spectrum netted more than $19.5 billion in bids from 101 participants. Due to this recent history, and the similar characteristics of the spectrum at issue, expectations for revenues from the incentive auction are high. Thus, by streamlining the foreign ownership review process now, the Commission creates more certainty for potential auction participants and potential investors.
The policy changes should dramatically reduce the time spent collecting and analyzing foreign ownership information and the expense associated with preparing and submitting multiple, often duplicative foreign ownership filings. Indeed, Commission staff estimate that the sheer volume of filings will decline by 40 to 70 percent.
In the broadcast license context, a new FCC policy for reviewing foreign investment in broadcast licensees would provide a more meaningful opportunity for incumbent broadcasters, prospective market entrants, and potential investors to more fully explore the possibilities surrounding the forthcoming incentive auction. The ruling is expected to issue prior to or in connection with the forthcoming rules for the incentive auction.
The effect that a favorable decision would have on the auction is unclear.
Angela E. Giancarlo is a Government & Global Trade partner in Mayer Brown's Washington office and focuses on the wireless, media and broadband Internet sectors. She provides counsel for strategic planning on spectrum allocations, auction-related policy and transactional issues; regulation of new licensed and unlicensed technologies; and international convergence and competition issues at the FCC and globally.
Howard W. Waltzman, also a Mayer Brown Government & Global Trade partner in Washington, focuses his practice on communications and Internet law and privacy compliance and represents some of the nation's leading communications service providers, manufacturers and trade associations in regulatory, compliance and legislative matters.
Donald K. Stockdale Jr. is a Government & Global Trade partner in Mayer Brown's Washington office, where he focuses on telecommunications regulation and antitrust. He advises some of the nation's leading telecommunications service providers, manufacturers, and industry associations in regulatory proceedings before the FCC and state public utility commissions.
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